Final Report for LNC98-127

Project Type: Research and Education
Funds awarded in 1998: $67,800.00
Projected End Date: 12/31/2002
Matching Non-Federal Funds: $40,500.00
Region: North Central
State: Kansas
Project Coordinator:
Dan Nagengast
Kansas Rural Center, Inc
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Project Information

Summary:

A tomato processing cooperative was developed to convert the production of cooperative members’ fresh produce into marketable processed products including tomato sauces and salsa. Finished products were returned to growers as much as possible, for sale through their own marketing channels with profits beyond the cost of manufacturing and processing to remain in the hands of growers. The cooperative developed a common label and nutritional analysis, and has processed for four canning seasons, including beyond the end of funding. Sales of product inventory will determine whether the cooperative continues.

Introduction:

Background of Problem:

One of the region’s few horticultural products which can suffer from market gluts is tomatoes. At the same time, most small horticultural producers do not have the wherewithal to convert these gluts to salable processed food products. Organizing a cooperative to process tomato products and return them to the growers for retail sales might solve the glut issue while increasing farm income.

Background of Problem:

One of the region’s few horticultural products which can suffer from market gluts is tomatoes. At the same time, most small horticultural producers do not have the wherewithal to convert these gluts to salable processed food products. Organizing a cooperative to process tomato products and return them to the growers for retail sales might solve the glut issue while increasing farm income.

Literature Review:

Tomatoes are a crop easily grown organically, and well suited to growing conditions in Kansas. Abdel-Baki, 1994. Coleman, 1989. Diver, 1992. Hall-Beyer, 1994. Jeavons, 1995. Lamont & Marr.
There is extensive literature on the formation of processing and marketing cooperatives. Frederick 1995. Rapp 1993. Rapp 1996. Reilly, 1992.
Canning and processing of tomatoes is an ancient art and there are numerous texts and references available. Gould 1992. Lopez 1987. Reynolds 1989.

Project Objectives:

Objectives/Performance Targets:

1)) developing and testing a variety of processed organic tomato products; 2) developing low-cost equipment suitable for use with limited processing runs of tomatoes in a certified kitchen; 3) development of a suitable, legal label, together with nutritional labeling analysis; 4) development of production standards and practices to standardize farm production; 5) development of a marketing cooperative, from business plan to self-sufficient business; 6) exploration and implementation of at least 3 marketing channels; 7) increasing farm family income through agricultural activity and retained control of value-added processing.

Cooperators

Click linked name(s) to expand
  • Fadi Aramouni
  • Richard Smith
  • Will Spotts

Research

Materials and methods:

Materials and Methods:

1) Developing and testing a variety of processed organic tomato products. Original experiments were conducted from the 1997 growing season through the 2001 growing season. We were constrained to working on some of these objectives only during the growing season. Product testing went on at KSU laboratories using purchased tomatoes from December 1997-April 1998. Recipe development and scaling to batch size was also pursued throughout the project period at KSU, the Treehouse Kitchen and eventually the Central Soy foods Processing Kitchen. We never did experiment with products such as dried tomatoes, dried soup mixes, etc. By the end of the project we were producing two types of tomato salsas and one sauce.

2) Developing low-cost equipment suitable for use with limited processing runs of tomatoes in a certified kitchen. Some analysis had already occurred, and we had begun working with KSU on processing bottlenecks in December 1997. Treehouse, Project personnel and KSU personnel continued addressing the equipment needs of the group for the scale at which we functioned. Investigation into large scale peeling devices made it clear that the project was underfunded to tackle that problem. We did develop working devices for larger scale hot-bath processing and eventually could hot-bath approximately 96 quarts of product (peeled, whole tomatoes) at one time. However, market demand led us away from the whole tomato product and towards salsas and sauces which utilized a hot pack process. A further bottleneck, peeling fresh garlic, was resolved with a hulling device that Central Soy foods uses for hulling soybeans.

3) Development of a suitable, legal label, together with nutritional labeling analysis. With assistance from KSU, we developed, printed and used legal labels, including nutritional analysis, for all our salsa products.

4) Development of production standards and practices to standardize farm production. Meetings were scheduled with farmers during the winter of 1997-1998, to set up production standards, select varieties and develop consensus on quality. The Production Coordinator worked with the seedling supplier and farmers to insure the tomatoes were planted and trellised properly. Standards were enforced and reviewed during each production year, including a system of dockage to insure that good producers were not penalized by substandard production. At the same time, we were assisted in on-going varietal trials by KSU horticultural extension, including both on-station and on-farm trials, out of which came several promising varieties

5) Development of a marketing cooperative. Incorporation options were explored during the winter of 1997-1998. The Project Coordinator began collecting bylaws and articles from other producer cooperatives, and investigating their practices in relation to marketing rights, compensation for volunteer time, voting rights, etc. Bylaws and Articles of Incorporation were developed during the fall and winter of 1998-1999 with actual filing for incorporation in spring of 2000. Management did not develop from within the group as was hoped, primarily because the cooperative functioned as such a small part of each farm’s operation that they were unwilling to devote the time necessary. Funding self-sufficiency was a priority, and the Project Manager researched various funding mechanisms utilized by other small-scale cooperatives. Ultimately though, funding depended on adequate production. As of the writing of this report (Nov. 2001) the major asset of the cooperative is an inventory of salsa which must be sold during the winter to insure cash availability for the 2002 growing season. Members of the cooperative will meet this winter to weigh the options and determine whether the cooperative will continue.

6) Exploration and implementation of at least 3 marketing channels. a) Product from the 1997 test batches on were market tested through CSAs and at farmers markets, as well as at cooperating retailers. b) Products were never marketed with the Cooperative Food Warehouse suppliers or displayed at trade shows, primarily because the local market could absorb all production. We have never attained so much production that product needed to be exported. c) For the same reason, product was never sent to various mail order merchandisers to seek inclusion in catalogs. .

7) Increasing farm family income through agricultural activity and retained control of value-added processing. The Production Supervisor worked closely with all growers, but especially those for whom commercial production of tomatoes was a new endeavor. Until the 2001 season, farmers received an agreed upon, per pound price within 3 months of delivery, or they could take payment in the form of processed product at wholesale prices for retail sale through their own channels, presenting an opportunity for even greater profits.
Prices paid to farmers were higher than through traditional wholesale channels, with costs of production set with that goal in mind. Profits were not retained by the cooperative. The 2001 season was the most productive, and a large inventory of product is in storage. As it is sold, farmers will be reimbursed.

Research results and discussion:

Results and Discussion/Milestones

The Project has been very successful at developing attractive, tasty products with good consumer demand and adequate shelf life. This was done, not without trial and error. Our initial product idea, organic, peeled whole tomatoes was impractical for many reasons. It was costly and difficult to produce, and had a low commercial value. It was also impractical for some of the very small producers to pursue organic certification. We had more success when we converted to salsa, primarily because of ease of production. At the same time, it opened the door for more local production because recipes required additional items including peppers, hot peppers, onions, garlic, cilantro and honey. The hot pack method in pint (vs quart jars for whole tomatoes) was quicker, easier, and resulted in a product for which there was more demand, and which commanded a higher value.

Resale of the product by farmers was very successful for those who chose that route. Wholesale price to them was roughly $2.50 per jar (which included all costs), and retail prices for their resale varied from $4 to $6 per jar. Most farmer sales occurred at farmers markets or through their CSA’s. It also allowed CSA farmers to provide tomato products early and late in the season when often their share bags were thin in selection. Farmers who chose to forgo reselling the product were generally happy with the cash price offered for produce.

Wholesales to groceries, etc., were generally marked up to around $3.59. It is interesting to note that farmers can get a higher price for the same product at farmers market, without supporting the overhead cost of a store.

The greatest disappointment has been the relative lack of investment by the growers into the cooperative as an entity. All are happy to sell produce and/or buy back processed product for resale. There is less enthusiasm for the meetings and commitment necessary to the excellent functioning of a cooperative. A redesign of the project would include cooperative formation and management of the entire project, from the beginning, by the cooperative.

Production has not amounted to a quantity sufficient to allow the cooperative to financially function as a stand alone entity. Members need to decide now whether they wish to continue, and if so, how they will capitalize operations for next year. Certainly members could invest in the cooperative, but they might also require more sweat equity to reduce processing labor, or they could lower the price of produce sold in, or increase the wholesale price for salsa they purchase back

Literature Citations:

Abdel-Baki, A., and J.R. Teasdale. June 1994. Sustainable Production of Fresh- Market tomatoes With Organic Mulches. USDA Agricultural Research
Service Farmers’ Bulletin FB-2279, Washington, D.C.

Coleman, E. 1989. The New Organic Grower. Chelsea Green Publications, Chelsea,
Vt.

Diver, S., L. Greer, and G. Kuepper. October, 1995. Organic Tomato Production.
ATTRA Current Topics in Sustainable Agriculture Report. Fayetteville, AR.

Frederick, D.L. December, 1995. Sample Legal Documents for Cooperatives. USDA
Cooperative Service Cooperative Information Report 40. Washington,
D.C.

Gould, W.A. 1992. Tomato Production, Processing, and Technology, 3rd Edition.
CTI Publications, Inc. Baltimore, MD.

Hall-Beyer, B., S. Diver, and M. Kaltenekker. November, 1994. Sustainable Vegetable Production. ATTRA Information Package. Fayetteville, AR.

Lamont, W.J., and C.W. Marr. Commercial Greenhouse Production: Tomatoes.
Kansas State University Cooperative Extension Service. Manhattan, KS.

Lopez, A. 1987. A Complete Course In Canning, Book 3. The Canning Trade, Inc.
Baltimore, MD.

Rapp, G. May 1993. Sample Polices for Cooperatives. USDA Cooperative Service
Cooperative Information Report 39. Washington, DC.

Rapp, G. and G. Ely. September, 1996. How to Start a Cooperative. USDA Rural Business Cooperative Information Report 7. Washington, DC.

Reilly, J.D. July, 1992. Cooperative Marketing Agreements: Legal Aspects. USDA
Agricultural Cooperative Services Research Report 106. Washington,
DC.

Reynolds, Susan. 1989. So Easy To Preserve. Georgia Cooperative Extension
Service. GA.

Research conclusions:

Impact of the Results/Outcomes

Value Added production is fraught with difficulties, but it is not impossible. Farmers can develop products superior to those found on most supermarket shelves. However, it comes at the price of sustained attention through a trial and error process of product development, business planning and formation, actual production and successful marketing. The rewards to farmers must be great in order for them to sustain this attention, because it does take time away from the farm, the farmer’s family and other interests. If the rewards are not great enough, this sustained drain on time will be seen as a burden.

Some of the most pleased farmers were those least involved. They produced extra, delivered, got their money and went on their way. The cooperative, in effect, served as another market for them. That is good, in and of itself. But it does not necessarily build a stable cooperative, and if quantities are small, even the lure of a new market does not necessarily result in farmer loyalty. Some farm families also availed themselves of the income opportunity found in providing paid labor during processing.

The project was a very good vehicle for building collaboration between land grant researchers and farmers, both in the on-farm field trials, and in the food processing arena. Extension personnel familiarized themselves with organic production and processing and found solutions that met organic certification standards while helping farmers familiarize themselves with acceptable processing protocols.

The project also built strong relationships between some of the farmers and the retail outlets which purchased their product for resale. Those relationships result in other, long term sales opportunities for farmers.

There is some unquantifiable impact that arises from a locally grown and processed food product replacing something already in the marketplace that is mass produced far away. We are not equipped to quantify the fuel conservation, the multiplier effect of an increase in sales of products grown locally, the increase in sales to a farmer at a farmers market because she had more products to fill out her display, or the increase of traffic at a farmers market because there are more products available. But we do think that impact exists

Economic Analysis

Economic Analyses

Produce poundage/number. of cases produced/ and wholesale value were:

1998 – 2050#/ 53 cases/$1,537.50
1999 – 3041#/96 cases/$2,280.75
2000 – 6750#/369 cases/$5062.50
2001- 8,295.4#/408 cases/$6,356.23

Retail value of $5 per jar would amount to total value of $24,480 for 2001.

Wholesale value encompasses costs of production. Retail value varied with each grower/vendor.

Farmer Adoption

Farmer Adoption

We had 10 growers in 1998, 16 in 1999, 12 in 2000 and 12 in 2001. There was some grower turnover. The largest grower was a youth group project in Matfield Green. Produce quality by all growers has risen each year. Standardized production techniques have been adopted by all project farmers, though no farmers sought organic certification because of the project. There has been a decrease in farmer participation as paid labor in the canning kitchen, necessitating the hiring of non-farmer laborers. This is probably due to the nature of the work.

Farmers were generally pleased with the project, the product and the extra income. They did not seem to fully embrace the cooperative as their own business. Most expressed a desire to keep it small, which raises the question of whether it can continue to exist, especially if enough revenue must be generated to hire professional management, even part time.

I would recommend that farmers investigate any value added enterprise thoroughly before embarking. It entails a venture into more than just markets, but also new types of work, new realms of knowledge and business structures, new partnerships and competitions. In some cases, value added enterprises may require traits that growers normally do not cultivate.

Participation Summary

Educational & Outreach Activities

Participation Summary

Education/outreach description:

Publications/Outreach

Outreach programs included:

Focus group with consumers, Lawrence, KS March 1999
Display at Kansas City Food Circle April Foods Day, Kansas City, April 1999
Display at Kansas Rural Center Summer Meeting, August 1999
Members Day Sampling at whole foods grocery, Lawrence, KS Dec. 1999
Display with materials at Small Farm Conference, Columbia, MO Nov. 1999
Two presentation at SARE Alternative Ag. Marketing Conference, Lincoln Nov. 1999
Display at SARE Alternative Ag. Conference, Lincoln, NE Nov. 1999
Presentation at Small Farms Conference, Columbia, MO Nov. 1999
Display at Kansas Rural Center Heartland Roundup, Dec. 1999
Presentation at Kerr Center Future Farms Conference, Oklahoma City, February 2000
Display at Kansas Rural Center Annual Meeting, February 2000
Display at Kansas City Food Circle April Foods Day, Kansas City, April 2000
Display at Small Farm Conference, Columbia, MO Nov. 2000
Presentation at Small Farms Conference, Columbia, MO Nov. 2000
Display at Members Day Sampling, Lawrence, KS Dec. 2000
Display at Kansas City Food Circle April Foods Day, Kansas City, April 2001
Display/Presentation to SARE Admin. Council, Lawrence, KS Summer 2001
Display at Local Foods To Local People Event, Lawrence, KS Oct. 2001

Project Outcomes

Recommendations:

Areas needing additional study

Areas Needing Additional Study

Peeling tomatoes remains the major bottleneck in our processing protocol. More labor dollars are spent peeling tomatoes than any other aspect of the operation.

The idea of a “processing” cooperative, rather than an input or marketing cooperative, remains alive as an area for further study and effort. It was based on the premise that these farmers could produce and that they could market, but that most couldn’t process on their own. The cooperative took on that load, and though it is a much heavier load than anticipated, this structure might work very well for other products. To the extent the cooperative is formed of excellent producers who also have command of excellent marketing channels, this structure might provide some real gains.

It would be a good thing to set up some sort of mentoring structure to help farmers seeking to add value-added enterprises to their farm operations.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.